Optim Energy wants to sell coal plant; seeks more reorganization time

Saying it has made progress on issues but needs more time, Optim Energy LLC on May 20 asked its bankruptcy court for an extension on the period where it has the exclusive right to file a reorganization plan without fear of competing plans being offered.

The company, which controls two gas-fired power plants and one coal-fired plant in Texas, filed on Feb. 12 for Chapter 11 protection at the U.S. Bankruptcy Court for the District of Delaware.

Optim Energy told the court in its May 20 motion that it has been heavily involved lately in the sale of the coal-fired Twin Oaks Plant, including but not limited to drafting the asset purchase agreement, preparing bid procedures and a related motion to sell the plant pursuant to section 363 of the Bankruptcy Code, conducting management presentations and plant tours, and participating in due diligence activities with a “large universe” of interested parties.

The extended period to file a reorganization plan that the company wants is through and including Oct. 10, with a Dec. 9 deadline to solicit creditor support for that plan. The current exclusive period runs to June 12, with a deadline to line up support of Aug. 11.

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Since the bankruptcy petition date, Optim Energy and related companies in bankruptcy have devoted significant resources and efforts to, among other things: obtain "first day" and other relief; review their books and records to assemble and file with the court their schedules of assets and liabilities and statements of financial affairs; review potential executory contracts and unexpired leases, including the Standard Market Form Participation Agreements with Electric Reliability Council of Texas (ERCOT), to determine whether it is in the best interests of the debtors' estates to assume or reject them; negotiate with the Robertson County Appraisal District regarding the proper tax assessment of Twin Oaks for the 2013 and 2014 tax years; manage the process to sell Twin Oaks; negotiate and enter into a stipulation with Walnut Creek Mining, the contracted lignite supplier to Twin Oaks, to resolve Walnut Creek's motion to compel adequate assurance of performance from the debtors regarding the debtors' obligations under the Fuel Supply Agreement; negotiate and enter into a stipulation with NRG Cedar Bayou Development Co. LLC and NRG Texas Power LLC which authorizes the debtors, among other things, to set off certain amounts and enter into new confirmations for the sale of gas generated by the Cedar Bayou Plant; implement a key employee incentive program; and respond to a “voluminous” discovery request and a standing motion from Walnut Creek.

“In light of the Debtors' significant progress made to date in these chapter 11 cases, and especially considering the extraordinary time commitments required to sell the Twin Oaks Plant and manage discovery and ongoing litigation with Walnut Creek, the Debtors respectfully submit that additional time is reasonably necessary to allow the Debtors to continue to develop restructuring alternatives and propose a chapter 11 plan or plans and solicit acceptances thereof free of any interference from creditors or other parties in interest,” the company said.

The debtor companies are power plant owners principally engaged in the production of energy in Texas' deregulated energy market through three power plants with an aggregate output of more than 1,200 MW. The depressed and changing economic environment of the electric power industry — particularly with respect to coal-fired plants — and the debtors' continuous liquidity constraints culminated in aggregated and continuing losses requiring them to file for Chapter 11 protection, the extension motion noted.

The power plants are:

Twin Oaks Plant: This is a coal-fired facility capable of producing 305 MW. Twin Oaks purchases the vast majority of its coal to operate the plant from Walnut Creek Mining under a long term fuel supply agreement executed in 1987. Under this agreement, Twin Oaks must purchase in excess of approximately 90% of its coal from Walnut Creek and is required to purchase minimum coal quantities regardless of the Twin Oaks Plant's actual coal needs. Twin Oaks is obligated to purchase coal from Walnut Creek to operate the Twin Oaks Plant for at least another ten years.

Altura Cogen Plant: This is a natural-gas powered plant capable of producing 600 MW located in Harris County, Texas, and sells the majority of its energy in the ERCOT market. The plant has been commercially operating since 1985 and is located within a complex of petrochemical facilities owned by Lyondell Chemical Co.

Cedar Bayou Plant: Cedar Bayou is a gas-fired plant capable of producing 550 MW located in Chambers County, Texas, which operates in ERCOT's Houston Zone. Debtor Optim Energy Cedar Bayou 4 LLC owns a 50 percent undivided interest in the Cedar Bayou Plant and NRG Cedar Bayou Development owns the remaining 50 percent undivided interest. The Cedar Bayou Plant began operating in 2009. It is located within a complex of electric generation facilities owned by NRG Texas Power. The Cedar Bayou Plant is operated by NRG Cedar Bayou under a Joint Ownership Agreement.